ABSTRACT
Outcomes of future events are uncertain. Decision making in this uncertain scenario assumes extreme importance in today’s business world. The survival or failure of business firms primarily depends on the quality of decisions by the managers. This has become particularly important in the present age where we are swamped by a wealth of information all around us. The intuition of an individual, however experienced and smart the person may be, can be no substitute for the advanced data analytic tools that we have at our disposal at the present time. As the outcomes related to all the factors and variables under consideration cannot be known with certainty, the theory of probability – which quantifies the chance of the occurrence of an event – has an extremely important role in the process of informed decision making. Indeed, the theory of probability has its origin in one of the oldest forms of business and financial activity of the world – gambling – where the more analytical players wanted to systematically study the different possibilities rather than leave everything purely to chance. Intelligent decision making is enhanced and the associated business risks are minimized when the theory of probability is suitably applied to reduce the level of uncertainty. The decision to determine the level of the inventory may be aided by a probabilistic assessment of the behavior of the buyer, the strategy of launching a new product may be enhanced by a probabilistic study of the benefits of advertising and marketing, and the decision of which stocks to hold may be supported by a probabilistic time series analysis of past data. Millions of other examples may be cited. The bottom line is that a decision maker with a probabilistic understanding of the situation is far better equipped to handle the real issues compared to one who does not have this capability.
